Working Capital Management

Loading the player...

What is 'Working Capital Management'

Working capital management is a managerial accounting strategy focusing on maintaining efficient levels of both components of working capital, current assets and current liabilities, in respect to each other. Working capital management ensures a company has sufficient cash flow in order to meet its short-term debt obligations and operating expenses.

BREAKING DOWN 'Working Capital Management'

Implementing an effective working capital management system is an excellent way for many companies to improve their earnings. The two main aspects of working capital management are ratio analysis and management of individual components of working capital.

A few key performance ratios of a working capital management system are the working capital ratio, inventory turnover and the collection ratio. Ratio analysis will lead management to identify areas of focus such as inventory management, cash management, accounts receivable and payable management.

RELATED TERMS
  1. Working Capital

    Working capital is a measure of both a company's efficiency and ...
  2. Gross Working Capital

    The sum of all of a company's current assets (assets that are ...
  3. Working Capital Turnover

    A measurement comparing the depletion of working capital to the ...
  4. Days Working Capital

    An accounting and finance term used to describe how many days ...
  5. Current Ratio

    The current ratio is a liquidity ratio measuring a company's ...
  6. Capitalization Ratios

    Indicators that measure the proportion of debt in a company’s ...
Related Articles
  1. Economics

    Calculating Days Working Capital

    A company’s days working capital ratio shows how many days it takes to convert working capital into revenue.
  2. Fundamental Analysis

    Advantages of Maintaining Low Working Capital

    Understand the benefits and advantages of maintaining low working capital as related to liquidity needs, capital allocation and operational efficiency.
  3. Economics

    Explaining Working Capital Turnover

    Working capital turnover is a ratio that helps show how efficiently a company is generating revenue per dollar of cash available to spend on operations.
  4. Investing News

    Retail vs. Tech: How These Companies Use Working Capital

    Learn about the difference between retail and tech businesses' use of working capital and why working capital varies so widely in the technology sector.
  5. Insurance

    Working Capital Works

    A company's efficiency, financial strength and cash-flow health show in its management of working capital.
  6. Investing Basics

    The Working Capital Position

    Learn how to correctly analyze a company's liquidity and beat the average investor.
  7. Investing

    Ratio Analysis

    Ratio analysis is the use of quantitative analysis of financial information in a company’s financial statements. The analysis is done by comparing line items in a company’s financial ...
  8. Markets

    Liquidity Measurement Ratios: Current Ratio

    By Richard Loth (Contact | Biography)The current ratio is a popular financial ratio used to test a company's liquidity (also referred to as its current or working capital position) by deriving ...
  9. Fundamental Analysis

    Explaining Capital Employed

    Generally, capital employed refers to all of the assets used in a business that contribute to the company’s ability to earn revenue.
  10. Forex Education

    Current Ratio

    Investing is a complex and often daunting experience, these equations are actually quite simple.
RELATED FAQS
  1. Why is working capital management important to a company?

    Learn about a company's working capital; good working capital management is essential to maintaining a company's liquidity ... Read Answer >>
  2. Can working capital be too high?

    Learn more about the working capital ratio, and understand how an excessively high ratio can be considered a negative in ... Read Answer >>
  3. What does a low working capital ratio show about a company's working capital management?

    Find out the significance of working capital management for a company and look at the working capital ratio analysts use ... Read Answer >>
  4. How can an investor determine the efficiency of a company's working capital management?

    Learn how working capital is vital to a company’s survival. Also learn key metrics investors use to assess how efficiently ... Read Answer >>
  5. What ratios are most commonly used to judge working capital management?

    Learn about the various working capital ratios that investors and analysts consider when evaluating a company's financial ... Read Answer >>
  6. Does working capital include stock?

    Discover what a company's working capital is and what it includes, how it is used, and what positive and negative figures ... Read Answer >>
Hot Definitions
  1. Goodwill

    An account that can be found in the assets portion of a company's balance sheet. Goodwill can often arise when one company ...
  2. Return On Invested Capital - ROIC

    A calculation used to assess a company's efficiency at allocating the capital under its control to profitable investments. ...
  3. Law Of Demand

    A microeconomic law that states that, all other factors being equal, as the price of a good or service increases, consumer ...
  4. Cost Of Debt

    The effective rate that a company pays on its current debt. This can be measured in either before- or after-tax returns; ...
  5. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  6. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
Trading Center